Archive for the ‘Mining’ Category

As regular readers will know, I’m a bull on Indonesia. But one problem that occurs regularly there is the inability of the Indonesian government to refrain from changing or trying to change the rules of the game. Very unsettling.

We see it in the regular calls by the government to re-negotiate the commercial gas contracts that S’pore has with Indonesia*. We also see it in the plan mooted last year by the central bank to limit bank ownership to 49%. This would mean Temasek, all three local banks, and M’sian banks having to cut back their holdings. So far nothing concrete has emerged.

Now Indonesia will force foreign firms to sell down stakes in mines by the 10th year of production, with domestic ownership to be at least 51%, in a move likely to hurt existing miners and scare off potential investors. The new rule is the latest government attempt to extract greater domestic profit from the vast mineral wealth in the world’s top exporter of thermal coal and tin. Indonesia contains some of the world’s richest mineral deposits, such as the Freeport-run Grasberg, the world’s largest gold mine, and its fast-growing mining sector accounts for about 11% of GDP.

The requirement, stated in a regulation on the mining ministry’s website, comes as the government is renegotiating contracts with the leading foreign metals miners in the country, Freeport McMoRan Copper & Gold Inc and Newmont Corp.

To be fair, the rule isn’t a brand new outbreak of resource nationalism. It is ad hoc legislation to fill in holes in a 2009 mining law, which followed 2003 revisions to royalties and 2001 rules on distributing mining revenue. The 2009 law required foreign owners to start divesting after five years of production, but didn’t say by how much. A number has now been provided, but it’s still not clear which existing mines the new terms will affect, if any.

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*S’pore’s new liquefied terminal will be able to handle sufficient imports of the fuel to cover all of the country’s power needs, even if piped gas supply contracts with Malaysia and Indonesia are not renewed, a senior civil servant said a few days ago. It depends on natural gas for around 80% of its power generation needs, with the bulk sourced from Indonesia and Malaysia under long-term contracts.

The leader of the Greens in Australia said that the 2005 execution by Singapore of Australian drug trafficker Van Nguyen is an example of why Singapore’s human rights record should prevent SGX from acquiring the ASX.

As

— the Greens and the Liberals and independents can outvote the minority Labour Party govmin; and

— in a situation where the S’pore govmin does not have a voting stake in SGX (unlike in the case of GIC and Temasek where the govmin clearly has the power), its human rights record is an issue;

what chance for GIC, or Temasek or a group company, or any other GLC getting approval to make a significant acquisition in the energy or mining sectors in Australia? Remember Temasek wants to expand its exposure in these sectors and GIC follows investment fashions and investing in natural resources is oh so hip. Oz is a “no-brainer” place to invest in given its abundance of natural resources, closeness to China geographically, its gd legal system and its political stability.

So maybe to widen our SWFs’ options, S’pore should promise Australia that it will never hang any Oz citizen for any crime. There is a precedent: a British man who fled to Oz was only extradited here only on condition that he wouldn’t swing if he was found guilty of murder.

It’s not as though there are that many other countries that have an abundance of natural resources, closeness to China geographically, gd legal systems andpolitical stability.. Canada too is another place where judicial murder is frowned upon. That leaves only the US where judicial murder is fine.

If you believe the gold story but lack the balls to come in at the US$1300 level, why not try silver? The Economist sets out the case.

[S]ilver and gold have much of the same allure. The combination of a weak dollar, low interest rates and economic uncertainty that has convinced some to buy gold and pushed its price up to around $1,300 an ounce has also encouraged them to put their money into other likely-looking stores of value. Silver not only offers investors diversity but it is also supported by real industrial demand.

… 25-30% of gold is bought by investors, only about a tenth of global silver production goes the same way. Roughly half the world’s silver goes to industrial users (the balance is accounted for by jewellery and other silverware), although their identity has undergone a huge shift over the past decade.

Granted film (which uses a lot of silver)-based photography has been made extinct by digital photography but New uses for the metal plugged the gap left by film. Silver is widely used in electronics, whether in buttons for TVs, in membrane switches in computer keyboards or as a coating for CDs and DVDs. But the great hope for silver is the solar-power industry. Photovoltaic cells, the technology used in 70% of solar panels, contain silver. Although other technologies that do not use silver are on the rise, heavy government subsidies are forecast to help keep the solar industry growing.

Demand for silver is likely to keep rising in developing countries in particular: China, which used to export the metal, now imports it. The same cannot be said for supply … three-quarters of the world’s supply comes as a by-product from copper, lead and zinc mines. So ramping up production is difficult. Total supplies of the metal in 2009, at 27,650 tonnes, were barely higher than in 2004.

But do remember that Warren Buffett has sold off the silver he bot in 2008. He could have some left but the bulk were sold last year.

Temasek and Hopu Investment Management, a Beijing-based firm, are to spend more than US$1bn to acquire a stake in New York-listed Chesapeake Energy; a US producer of natural gas from shale rock. They follow other foreign investors into the sector.

They agreed to buy US$600m of convertible preferred stock and have an additional 30-day option to acquire a further US$500m of the stock, which they are “highly likely” to exercise alongside other investors. Bloomberg reports.

Cynics must be wrong to continue believing that the government (and MM lee in particular) controls the decision-making process at Temasek. Temasek has the independence to do the wrong things. Bit surprising that Temasek’s PR machine does not highlight this. Are there subversives in the PR department that want to hide the truth of the relationship between Temasek and the government from the public. Friends of SDP and Dr Chee?

But still, one would have tot Temasek would listen to someone whom Time magazine rates as among the 100 most influential persons in the world. Sigh, reminds me that somewhere in the bible there is something about a prophet being without honour in his own home.

Let’s hope that the Fates do not punish the hubris of Temasek’s management. We lose.

BTW three mining deals you may not be aware of

It agreed to buy a peanutty US$50 million stake in the January share sale in Hong Kong by SouthGobi Energy Resources Ltd., a coal producer operating in Mongolia.

It provided funding for Niko Resources Ltd.’s $300 million acquisition of Black Gold Energy LLC. Temasek bought the C$310 million convertible bonds issued by Niko, the Calgary-based oil and natural-gas explorer said in a statement on Dec. 30.

And it bought 382,000 additional shares in Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, in the first quarter, according to a recent filing with the SEC. Based on a closing price of US$70.24, that additional investment was worth about US$27 million, “peanuts”.

Update 18/5/10

According to a Reuters report, it has also recently bot C$500 million in Inmet Mining and a peanutty US$50 million in Platmin over the past two months.